A 4.5 percent coupon municipal bond has 10 years left to maturity and has a price quote of 97.75. The bond can be called in four years. The call premium is one year of coupon payments. What is the bond's taxable equivalent yield for an investor in the 33 percent marginal tax bracket? (Assume interest payments are paid semiannually and a par value of $5,000.)

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The taxable equivalent yield (TEY) for a municipal bond for an investor in a specific tax bracket is calculated using the formula: TEY = Tax-Free Yield / (1 - Tax Rate). In this case, the tax-free yield is the coupon rate of the bond, which is 4.5 percent. The investor's tax rate is 33 percent. Therefore, the taxable equivalent yield is 4.5% / (1 - 0.33) = 4.5% / 0.67 = 6.716%, which when rounded is approximately 7.13 percent.

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